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Dewey
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ALFRED
P.
WORKING PAPER
SLOAN SCHOOL OF MANAGEMENT
GENERIC STRATEGY AND THE PRODUCT LIFE CYCLE
by
MING-JE TANG
August 1984
1601-84
MASSACHUSETTS
INSTITUTE OF TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
GENERIC STRATEGY AND THE PRODUCT LIFE CYCLE
by
MING-JE TANG
August 198A
1601-84
SeP 2 4
'
1
r iii r iii
1985
The product life cycle(PLC) concept has been widely discussed in business
literature since
was
it
introduced by Forrester in 1959.
first
usually advanced in the contexts of new
allocation as
aid
an
to
strategy
formulation
business unit(SBU) level and the corporate
is utilized
that the
PLC
PLC is a
good
competition
indication
in
resource
both the strategic
at
level.
and
is
primary
The
reason
strategic planning is that the stage of the
trend
the
of
However,
pattern.
planning
product
It
primary
in
proposition
this
demand
has
and
the
been
not
substantiated or refuted empirically.
Taking one step further, there are
three sequential questions that
to
utilize the PLC concept:
what are
(i)
need
answered
be
Is the concept valid?
before
(ii)
If
the characteristics of each stage of the cycle?
characteristics are correct, what are
these questions
If
those
Answers
been sought in the published literature.
have
can
is valid,
it
(iii)
implications?
their
one
to
The PIMS
data base will be used to empirically test various propositions regarding
the three questions posed above.
This analysis places emphasis on the effects of the PLC
strategies of
Generic
SBUs.
strategy may be defined as the most basic
decision made by an SBU in the hierarchy of its
paper seeks
to
identify
generic
the
on
generic
strategies
decision
in
identify appropriate generic strategies for SBUs in
the
This
making.
industry
separate
and to
stages
of
the PLC.
This paper is organized into five sections.
the basic
concepts
of
The first
section
presents
the PLC and the empirical evidence related to its
Since the empirical studies of the PLC almost exclusively deal
validity.
with the validation of the shape of the PLC, an attempt has been made
PIMS
use the
data
base
to
different stages of the PLC.
further explore the characteristics of the
presented
The results are
The third section attempts to develop
section.
generic strategies
the industry.
in
to
a
the
in
second
methodology to identify
This methodology is applied to the
chemical industry and the machinery industry.
Utilizing the
results
of
third section, the fourth section studies the generic strategies
the the
of SBUs in different
stages of the PLC.
The final section
examines
the
effects of the length of the PLC on an SBU's generic strategies.
I
The Product Life Cycle
The primary focus of the PLC studies is the shape of the PLC.
the PLC is determined,
shape of
which
in
it
discuss
a
the
can be used to forecast future demand
turn, constitutes a base for strategic planning.
will first
Once
This
section
theoretical model of the shape of the PLC and then
present a literature review of the empirical studies of the PLC.
1.
A Theoretical Model of the PLC.
The PLC represents the unit sales or unit demand curve of a product
time.
Usually,
the
PLC
divided into four stages:
The only
rationale
is
approximated
by
over
an S-shaped curve and is
introduction, growth, maturity,
and
decline.
underlying the shape of the PLC that can be found
the literature is the theory of innovation diffusion. [Bass ,1969]
in
The innovation diffusion process is usually viewed as a social
basic premise is that, over time, the information diffuses
The
process.
and the likelihood that the economic agent will adopt the
innovation
is
function of the number of agents that have already adopted
an increasing
it.
contagion
The process can be described by the equation:
dx/dt=ax(l-x)
Where
x
(1)
is the
proportion of adopters to total
the parameter, a,
potential
indicates the "potency of spread."
adopters,
and
The solution of the
above differential equation is an S-shaped curve.
The use of the diffusion theory as the rationale for the shape of the PLC
has attracted three major criticism.
First, it does not cover the replacement
employed to
forecast
total
demand
and
thus
can
not
be
demand, especially for frequently purchased
goods.
Second, the diffusion rate only explains
stages of
the
of substitutes,
PLC.
the
growth
and
the
maturity
The decline of a product is caused by the emergence
which is not included in the innovation diffusion
model.
Third, the demand growth of a new product is the sum of the shift of
demand
curve
and
the
movement
along
a
given
demand
curve.
Chow[1966]and Bass[1979] have pointed out that the diffusion theory
the
Both
only
explains the
shift
the demand curve, but ignores the movement along
of
the demand curve which results from
experience curve effect in
predict the
shape
competitive market.
a
in
a
are
Typically, there
(e.g.
planning.
aggregation
product
level of
at
form
Regal) [Polli and Cook, 1969].
substitutes
that are
Thus, to understand and
if
the PLC is to
used
be
The first step is to determine the
which
the
will
PLC
employed.
be
levels of product aggregation-product class
three
product
automobile),
the
addition to the diffusion rate.
strategic
in
by
price change, the substitute and the
The basic concept of the PLC must be clarified
effectively
caused
the PLC, one has to consider the experience rate,
of
income and substitution effects of
replacement rate,
decline
price
the
(large
and
car),
brand
(Buick
Product classes include all those products
for the same needs.
Ideally, objects belonging in
different product classes should have zero demand cross-elasticities.
product class thus defined can be referred to as an industry.
is not
cycle consists of the life cycles of product forms,
product form and shows
than the
life
pattern.
Moreover, most industries are in the
stay there
cycle
indefinitely
population[Kotler
have close
of
,
1980].
a
since
it
a
is
longer
usually
somewhat more stable
maturity
and
stage
may
their demand is highly correlated to the
The brand level is also inappropriate,
brands
Since
substitutes and their sales show an irregular pattern.
the brand life cycle is too erratic and the industry life
steady, most
This level
Since the industry life
for use in the PLC concept.
appropriate
A
cycle
is
too
marketing researchers agree that product forms are the most
appropriate level of product aggregation
in
utilizing the PLC
concept
The second step and a major criticism of the PLC is the determination
the current stage of the PLC of the products of a business.
it
is
Usually, the
business is in is determined by the demand growth rate.
stage the
difficult to estimate future demand growth,
able to locate itself exactly in anyone stage.
generally know
the
stage
it
is
the
business
is normally distributed with a zero mean,
in the growth stage
if
not
is
observing the market growth rate
in by
assuming that the percentage change of
By
Since
However, the business may
over a period of time and then, using the method suggested by
Cook[1969].
of
a
and
Polli
product's sales
they suggest that a product
is
its percentage change in sales is greater than 0.5
cr;
and is in the decline stage if the percentage change is less than -0.5
C
and
is
the maturity stage if the percentage change is within the
in
range of +0.5 C.
Third, as indicated, the determinants of the shape of
diffusion rate,
the
product substitutes.
technological
substitutes.
experience
the
PLC
are
the
rate{if the market is competitive), and
Promotion may increase the diffusion rate
and
the
emergence
of
Therefore, the shape of the PLC is partially determined
by
policy
of
the
business
may
affect
the
the behavior of the firms in the industry.
In sum,
shape of
the innovation diffusion theory is not sufficient to explain
the
PLC.
The
concept
of
PLC itself lacks accuracy.
necessary then to examine empirical evidence regarding the shape
PLC.
the
It
of
is
the
2.
Empirical Studies of the Shape of the PLC
Research concerning the shape of the PLC covers both industrial goods and
,
Studies
consumer goods.
diffusion
S-shaped
curve
1968, Romeo 1975].
For
quantitative study
of
industrial
of
Kluyver [1977]
example,
the
products.
new
of
goods
usually
validate
[Davies
1979, Mansfield
has
data.
and
,
a
a,b,c,d
and
t,
e
is
the
to
base
of
natural
the
are constants to be estimated from the
f
His study suggested that the components of
heavy-duty
of industrial goods,
and
truck
Except for
farm equipment industries have varying S-shaped sales curves.
the diffusion
data
set of
His formulation is
where St denotes the sales in time
logarithm
typical
a
Kluyver first specified a mathematical
PLC.
formulation of the shape of the PLC and then collected
test his formulation.
done
the
even for educational innovations, the
traditional S-shaped diffusion curve fits very well in five
out
six
of
cases[Lawton and Lawton, 1979].
For consumer goods, however, the classical S-shaped PLC has been
pattern of
Swan{1979)].
the
many
patterns
discovered
by investigators.
a
[Rink and
The major difference between the various patterns found
empirical studies is the behavior of sales in the maturity stage.
in the
major
in
Except
classical S-shaped PLC, the maturity stage may exhibit innovative
maturity [Buzzell 1966, Levitt 1965], or
stable maturity [Buzzell ,1966]
,
cycle-recycle
which are shown in Figure
[Cox
1.
1967],
or
Sales
Sales
Innovative Maturity
Sal^s
Stable Maturity
Cycle-Recycle
Figure 1
Types of the PLC in the Maturity Stage
For the S-shaped sales curve, Bass[l969] deveoped an S-shaped sales model
for new consumer durables based on the diffusion theory.
his
S-shaped
model
fits
sales
the
history
durables(ref rigerators, air conditioners, etc.).
the applications
of
1980].
found
that
consumer
eleven
Nevers [1972]
His results also validate the Bass
in many international settings,
some
He
extended
the Bass model to the retail service, agricultural,
and industrial sectors.
limited, unless
of
.
model.
But
the predictive power of the Bass model is
qualitative
judgments are made[Heller and Hustad,
Other than the Bass model, evidence supporting the S-shaped
PLCs
can also
found
be
nondurables.
Polli
and
[1967],
in a
in
But, Cox
Cook's
study
study[1969]
of
of
140 consumer
ethical-drug
258
brands,
identified six patterns of the PLC and found that the cycle-recycle model
shown above best fits the data for about two-thirds of the drugs studied.
He suggested
the
that
"recycle"
is
due to the heavy promotion by the
producer when sales decline.
His finding suggests that firms'
policy may extend the life of
a
promotion
product.
Another piece of work which does not follow the S-shaped pattern is found
in Buzzell [1966]
continuous
.
rapid
He found that some processed food
growth
(innovative
maturity,
material
[Levitt 1965].
costs.
Nylon
also
exhibited
rapid
year
million
1962
if
its
pounds in 1962 because of the development of new
uses in tires, carpet, gears and sweaters.
fact that companies'
in
Demand
However, demand actually
sales were to follow the traditional PLC model.
approached 500
decline
the same sales pattern
Nylon was used originally in parachutes and rope.
would have peaked at about 50 million pounds per
either
cereal)
e.g.
because of high rates of product innovation or because of
of raw
displayed
products
These two studies reflect the
effort in technology, either in
process
innovation
or product innovation, may change the shape of the PLC.
In conclusion,
from the literature review, the shape and the existence of
the PLC is generally
These deviations
confirmed,
is
not
there
are
some
deviations.
are largely due to efforts of the firms in the areas of
technology and promotion.
the PLC
although
an
Consequently, managers have to be
uncontrollable variable.
aware
that
Because the PLC partially
depends on firms behavior, Dhalla and Yuspeh(1976)
should "forget
the
product
As indicated,
argument.
managers do
life
cycle
the S-shaped
concept".
that
managers
This is not a fair
reflects
curve
if
nothing and let the contagion process proceed naturally.
It
is a benchmark
for planning.
A
efforts
their
a
sales
more beneficial approach is not to forget
the PLC concept, but to use the PLC as
should take
PLC
argue
into
a
base
planning.
for
Managers
account to modify the shape of the PLC
when they utilize the PLC as a planning instrument.
As indicated, the usefulness of the PLC concept is that
capture demand
formulation.
and
If
its
phases
competition patterns which are essential in strategy
the PLC concept is valid, then the next question is what
are the possible characteristics of demand and competition in each
that can be used as a base to formulate competitive strategy?
great deal
has
will present some common suggestions about the
These
Although
a
The 'following section
characteristics
of
each
arguments will then be tested by using the PIMS data base.
THE CHARACTERISTICS OF THE STAGES OF THE PLC
II.
1.
phase
been written on this subject, very few empirical studies
have been done to support the arguments presented.
phase.
can
Common Suggestions of Characteristics of the Stages of the PLC
After
a
new product has been launched,
change across time.
his 1979
book.
its demand and
supply
conditions
Porter has summarized those changes in each stage
There
is
no
reason to duplicate his work here.
10
in
This
section will only briefly mention several
four stages
attributes
important
the
of
Generally speaking, some writers agree that the
of the PLC.
following phenomena characterize the four stages of the PLC[Kotler ,1980,
Staudt 1976, Levitt 1965, Forrester 1959].
demand needs to be created.
In the introductory stage,
costs are thus substantial.
negative, and
competitors
early
those
limited to
risk-taking.
The
buyer
As a result, profits tend to be low or
are
few.
characterized
adopters
a
even
the growth period, buyers are
In
high-income,
by
group is widening, the product begins to appeal
to different groups and prices are relatively
decline as
Promotion and R&D
higher
The resulting high profits
result of the experience curve.
attract new entrants into the field.
In this stage,
be less then that in the introductory stage.
which
costs
than
promotion cost
will
In the maturity period,
the
opportunities for product improvement had already been exploited, and the
product tends
to
The absence of entry barriers with
standardized.
be
respect to product differentiation causes competition to
intensify,
and
profits fall.
Two kinds of industries may attract increasing international
when they
reach
capital intensive
innovations.
In
maturity
the
industries
labor
stage:
which
intensive
labor
had
intensive industries and
major
experienced
industries,
when
a
standardized and its associated technology becomes widely
locus of
competition
process
product becomes
diffused,
the
production of the product will be determined by relative factor
costs [Vernon 1966].
Therefore, low
labor
11
cost
countries
will
enter
When
industries.
labor intensive
capital
maturity, they are characterized by high
These
past investment.
costs.
cost
fixities
cost
intensive
industries reach
fixities
naturally
resulting
from
lower their marginal
As long as the marginal cost of using old equipment is lower than
the average full cost of using new equipment,
new equipment.
firms will
not
invest
in
Thus, cost fixities prohibit domestic firms from adopting
that would bring average cost down.
process innovations
in the automobile
industry, and continuous-casting method
industry [Rosegger 1979]).
As
foreign
producers
to
be
higher
in
steel
the
produce these capital
intensive goods with new equipment, the average cost of
industries tends
(such as robots
domestic
mature
than that of their foreign competitors.
Such factors attract increasing competition from foreign countries.
Finally, at the last stage, the increasing competition
decline in
demand
cause
the
profits
as
well
as
the
and the number of competitors to
fall.
In sum,
researchers generally agree on the following hypotheses:
.Marketing and R&D expenses will decline as the PLC proceeds
.Products will
be standardized
.Imports from countries with low manufacturing costs will increase
.Competition will intensify
.Profit will be
highest in the growth stage and decline after that
Two questions regarding the rationale of
12
the
above
hypotheses
may
be
The
raised.
first
concerns
question
competition
relationships between profits,
concept.
management's
concerns
second one
assumption
the
demand
grows, competition is not intense, but,
when
competition
stage).
becomes
the
(maturity
fierce
competition cycle, profits
decline stages.
above
the
arguments
in
is
turn,
Specifically, it is assumed that when demand
are tied to the life cycle.
in
The
Therefore, the competition cycle and the profit cycle
determine profits.
period, rise
cycle.
the patterns of competition which,
governs
growth
the
toward the usage of the PLC
attitude
First, an implicit assumption behind
that demand
life
and- the
about
are
growth
low
negative
or
and
stage,
As
in
becomes
a
result
the
stagnant,
of
the
introduction
then fall in the maturity and
These relationships are shown in Figure 2.
Competition
Profitability
Intro.
Growth
Figure
Maturity
^
Time
2
The Trend of Profitability and
Competition in the
Life Cycle
The relationship between competition and profits is well recognized,
the underlying
rationale
of
but
the proposition that demand growth governs
competition has not been clarified.
At an extreme, Porter[1980]
13
argues.
"Except for the industry growth rate, there
is
little or no
underlying rationale for why the competitive changes associated
with the life cycle will happen."
However, Porter ignores an element of the PLC which
and the stages of the PLC-- time.
components
time, two
the
of
relates
competition
To a certain extent, demand growth and
may
PLC,
affect
the competition in the
industry through changing the height of entry barriers.
It
should be noted that whether competition becomes
maturity stage
barriers.
depends
on
rate
the
of
entry,
Two factors may affect the height of
passage of
time,
diffusion
the
intensified
function
a
entry
barriers
It
obvious
is
of diffusion of technology may reduce entry barriers.
in
reduce the
significance
of
scale
of
economies
of
scale
demand,
speed
The second factor,
the
entry
as
barriers.
.
If
MES grows
faster
industry will become concentrated and vice versa.
the
Therefore, the height of entry barriers
to
that
may increase in the passage of time as the
product becomes standardized and is mass produced
relative
the
in
demand, may allow new entrants to reach MES, and in turn,
However, economies
than the
entry
of
of technology and the growth of demand
relative to the minimum efficient scale(MES).
the growth
the
in
MES
growth,
and
depends
the
on
demand
the
diffusion
growth
technology.
of
Consequently, whether the competition pattern changes with the
stage
of
degree
of
of scale,
the
the PLC depends on these two factors.
For example, the U.S.
maturity 25
years
passenger car
ago.
Due
to
industry
substantial
14
reached
some
economies
competition was not strong, and
this
Clearly,
1960's.
theorists.
is
industry
the
not
However, as the demand growth of
overcame the
economies
and
scale,
of
diffused, Japan auto makers were able
compete with
their causes
as
to
Japanese
the
production
the
PLC
technology
market
and
auto
barriers
and
can explain the competition and profitability of the U.
In
it.
in
market
auto'
U.S.
This example shows that entry
auto industry better than the PLC can explain
main reason
the
enter
the
by
Consequently, the profits of the U.S.
the big three.
makers have since declined.
predicted
situation
the
profitable
very
was
conclusion,
S.
the
competition is associated with the stage of the PLC is
that
that entry barriers are affected across
time.
One
must
look
at
the
underlying factors affecting entry barriers to predict future competition
rather than
merely
the the PLC as a predictor of competition and
using
profits.
The PLC concept
useful
is
competition patterns
of the
PLC
is
that
in
important;
not
primary
captures
the
important
question
vs quality competition) change with the stage of PLC.
competition are the primary concerns of managers,
the
long
time.
increased sharply.
Management should
is
how
the
it
Since
is most
demand
and
important to
that affect competition and demand, such as income
factors
and price elasticities.
for a
and
market structure, price competition
competition pattern and demand (e.g.
look at
demand
Therefore, the validity of the shape
its stages.
in
it
As
This
For example, coal had been in the decline
a
result
can
scrutinize
not
of
be
stage
the oil shock, the demand for coal
explained
by
the
PLC
concept.
the determinants of demand and competition
15
.
future demand and competition.
in order to predict
the determinants
competition and demand
of
available, the PLC may then be used as
PLC concept seems to be widely used
because of
convenience
its
in
a
is
When
information
costly to obtain or
is
surrogate tool in planning.
not
because
of
not
The
accuracy
its
on
but
indicating somewhat the future stages of
evolution
Although there
unanimous
is
characteristics of
Table
2.
1
show
among
researchers
about
the
each stage of the PLC, there is a lack of evidence to
support these arguments.
used to
agreement
To fill this gap,
the PIMS data
differences between stages.
the
will
base
be
The results are shown in
and will be discussed in the following section.
Empirical Study of the Characteristics of the PLC
Before discussing the results of our analysis using the PIMS
some qualifications
regarding the data base have to be made.
First,
sample businesses in the PIMS data base are SBUs which supposedly
in only
market.
one
parent companies.
way
of
market scope
of
homogeneous.
This heterogeneity may lead to distortion of
Secondly, many
SBUs,
variables
in
the
measured.
share.
engage
These
defining
definition of the market served
our
the
is not
results.
data base are subjectively measured,
this
such as the stage of the PLC, product quality,
even market
the
The markets served, however, are defined by their
Since each company has its own
its
base,
data
measures
are
relative direct
cost
and
not as precise as objectively
Thus, our results are highly tenuous and one has to keep these
16
deficiencies in mind in interpreting our results.
In the PIMS data base,
the business'
In order to use
the sample businesses themselves.
further
basis for
reported stages by examining
the
check
the
variables
that,
by
By definition,
supposed to change in different stages.
as a
percentage
total
of
newness
sales,
technological change should decline as
of
as
a
validity of the
are
definition,
new product sales
plant and equipment, and
proceeds.
PLC
the
variable
this
first
must
one
study,
stage within the PLC is reported by
s
The
market
growth rate should be highest in the growth stage and decline after that.
In Table 1,
one can observe that all these variables act in the direction
growth rate in introductory stage is
market
expected, except
that
higher than that
in
the
growth
significant (t=0.85,
not
significant)
neglected.
the
stage.
But
and
the
this
difference
is
contradiction
not
may be
Therefore, the stage reported is generally correct and may be
used as a basis for further study.
In the previous section,
it
is
suggested that marketing and R&D expenses,
imports, product standardization,
vary in
different
stages
of
competition,
the PLC.
profitability is shown by three measures:
and
will
profitability
To test these hypotheses, SBUs'
gross margins,
ROI
and
ROS.
The intensity of competition is measured as the inverse proportion of the
largest four firms' market share.
(i)
It
is
found that:
maturity stage(72.1 percent
Most of the businesses are in the
in the growth stage.
(ii) R&D expenses as a percentage of
sales is highest in the
17
)
or
.
introductory stage and decline after that.
The same is true
(iii)
(iv)
Imports as
a
for marketing expenses,
percentage of total market sales increase over time.
Customization declines from the growth stage;
product
standardization increases across time,
(v)
Gross margins are
highest in the introductory stage and decline
afterwards. The high gross margins may be due to the monopoly power
attached to new products.
by high marketing and
R&^D
But the high gross margins are eroded
expenses in the introductory stage.
Therefore, ROI and ROS are the lowest among the four stages.
This result is consistent with Biggidike' s[1979] findings about the
profitability of new entrants,
(vi)
ROI and ROS decline after the growth stage
.
ROI
in
the
growth stage is significantly higher than that in the maturity
stage(z=2.55 significant at
in the
0.01 level). ROS is also higher
growth stage than in the maturity stage, but it is only
significant at 0.05 level (z=l .87)
(vii) The intensity of competition increases in the maturity stage from
the growth stage.
T-test shows that there is significant
difference in the largest four market shares between the
growth stage and the maturity stage(t=2. 31
18
,
p=O.Ol)
)
)
Table
1
Characteristics of the Stages of the PLC
Introductory
No.
of Obs.
MKT GROWTH
% NEW PRODT
PS.E NEWNESS
TECH. CHAG.
R&D/REV.
MKTING/REV
IMPORTS %
CUSTOMZATON
ROI
ROS
GRS MRGIN
MKT CONCEN.
32
Growth
1046
Mean(S.D.
Mean(S.D.
19.84(14.55)
33.68(28.10)
66.17(12.7)
0.75(0.433)
5.06(3.69)
16.56(9.34)
17.63(13.26)
13.78(17.68)
59.29(16.0)
0.49(0.50)
3.08(3.25)
9.92(6.49)
4.16(8.17)
0.296(0.46)
24.89(25.53)
10.23(11.61)
29.99(14.09)
72.81(21.67)
n.a.
0.125(0.33)
3.90(24.88)
-0.75(14.07)
34.69(17.87)
62.60(21.84)
Maturity
3554
Mean(S.D.)
10.63(10.18)
6.77(13.05)
52.60(14.6)
0.20(0.40)
1.78(2.21)
8.73(6.73)
5.66(10.2)
0.21(0.41)
22.68(21.42)
9.50(9.04)
25.88(12.10)
71.05(21.71)
Decline
231
Mean(S.D.)
F
6.61(9.94)
3.55(6.09)
45.21(14.7)
0.22(0.41)
1.15(1.68)
8.31(5.92)
12.82(15.2)
0.12(0.33)
15.06(19.1)
5.69(8.43)
19.83(11.5)
69.64(23.3)
143(0.001)
110(0.001)
87.6(0.001)
132(0.001)
101(0.001)
23.1(0.001)
13.3(0.001)
17.6(0.001)
20.0(0.001)
25.8(0.001)
54.7(0.001)
3.96(0.008)
(P)
Definitions; MKT GROWTH: Served market annual growth rate
P&E NEWNESS: Net book value/gross book value
% NEW PRODUCT: Percentage of total sales accounted
for by products introduced during last 3 years
TECH CHAN: Equals 1 if there have been major technological changes in the last 8 years and zero otherwise
R&D/REV: R&D expenses as a percentage of sales
MKTING/REV: Total marketing expenses as a percentage
of sales
IMPORTS %: percentage of imports in served market sales
CUSTOMZATIN:Equals 1 if the SBU designed or producedto
orders for individual customers and zero otherwise
ROI: Pretaxed income over invested capital
ROS: Pretaxed income over sales
GRS MARGIN: Gross marqins= Sales-di rect costs-deprec iation
Sales
MKT CONCEN: Largest four firm market share
19
F-tests show that all these variables are significantly different
agreement
Thus,
four stages.
in
the
among researchers on the characteristics
are generally confirmed.
In conclusion, despite
the
deficiencies, it
govern
environment.
does
characteristics
some
following
The
of
that
fact
suffers
PLC
businesses'
of
sections
separate
the
the
discuss
stages
behavior and their
how
the
of
certain
from
PLC
different
the
affect
generic
competitive strategies.
An SBU's strategy should be formulated based on trends in the environment
and its own strengths and weaknesses.
the PLC is a good indication of
Therefore, the
trends
the
environment.
SBU's
an
in
phase of the PLC partially shapes the strategy of an SBU.
In addition to the phase
influence an
As indicated, the current phase of
SBU's
PLC,
of
strategy.
length
the
of
the
will
PLC
also
example, an SBU in an industry with
For
short PLCs should have enough flexibility
cope
to
with
product
rapid
innovations introduced by the SBU and its competitors.
The following sections examine the effects of both the phase
of the
PLC
on
an
SBU's
strategy.
The
definition of generic strategy and develops
generic strategies
in
a
particular
first
a
industry.
section discusses the
methodology
section
looks
at
the
effects
generic strategies.
20
of
to
identify
The second section then
analyzes the appropriate generic strategies for each stage
The third
length
and
of
the
PLC.
the length of the PLC on
III.
1.
THE DEFINITION OF GENERIC STRATEGY
The Definition of Generic Strategy
Two main approaches concerning generic strategy emerge from the
the
"process"
approach
and
process approach
primarily
concerns
generic
literature:
process.
[Miles
and Snow, 1979;
approach focuses on
describing organizational
"content" approach.
the
types
of
processes
a
are
strategy.
our
(
literature.
generic
and
strategy
,
the concept of generic
strategy
,
the content approach, has seldom been discussed in management
states
Porter
giving
consistent," without
generic
that
a
definition
describes three generic strategies-and focus--
variables
Since
results with those studies using the process approach.
Since being proposed by Porter 1979)
which uses
The content
not available in the PIMS data
base, we will adopt the content approach to study
then compare
The
organizational
of
Miller and Friesen, 1978].
components
the
strategy
based
two
on
strategic advantages.
It
cost
strategy
of
is
"internally
He then
the term itself.
leadership,
differentiation,
strategic dimensions :market segmentation and
is not clear
from
description
this
what
the
term generic strategy means or how this concept relates to other concepts
of
strategy.
The generic strategy of an SBU reflects an integrated view of
strategic behavior.
decisions;
It
originates
from
the
hierarchical
some decisions govern other decisions.
21
(
the
SBU's
nature
This character
of
has
extensively
been discussed
literature
the
in
Ansoff 1965, Hofer and Schendel 1978].)
the highest
decision
leadership, for
competition),
market(
product
.
the
hierarchy.
strategic
Dr.
,
as
Consequently,
decisions.
Cost
result of decisions about the
market),
competition
standardized
product),
pattern(pr ice
and
focus
Another example is Polaroid's early
exploit
to
i.e.
mass
design{
production (efficiency ), etc
strategy,
other
determines
example,
target
all
defined
Generic strategy is
decision
the
in
dominates
generic strategy
selection of
made
[March and Simon 1958
on
generic
Land's invention, the instant camera.
Sears' previous generic strategy was to provide quality
good service with relatively low prices.
merchandise
and
P&G's generic strategy is based
on the concept of mass marketing a relatively low-priced quality consumer
product line through supermarkets.
As the choice of the SBU's generic strategy will determine
the SBU's strategic decisions,
decisions of
it tends to
the
rest
of
integrate all of the strategic
an SHU into a coherent one and in doing so, creats internal
consistency among decisions.
Generic
between strategic
and
decisions
strategy
specifies
relationships
thus provides an integrated view of an
SBU's strategy.
The generic strategy defined above differs from the strategy
Ansoff(l965) and
Hofer
latter suggest that
a
and
Schendel s(l978
'
)
in one
major aspect.
strategy consists of four components.
generic strategy of an SBU governs these components.
concept
For
of
The
However, the
example,
the
generic strategy of cost leadership not only specifies the product-market
22
served, and
the
competitive
employment
the direction of resource
choice of
advantage chosen (price
but also dictates
,
)
reduction
(cost
oriented).
The
the generic strategy is a decision made prior to the decisions
regarding these components.
Three dimensions used to describe
and market share acquisition.
classification
of
dimensions
The first two
strategies.
generic
the
of competitive advantages,
selection
segmentation,
literature-- market
Porter's
generic strategy may be found in
a
originate
The
three
from
generic
strategies suggested by Porter, cost leadership, product differentiation,
and focus, are formulated based on market
advantages.
Cost
leadership
is
segmentation
strategy
generic
a
and
competitive
which treats the
market as an aggregate without recognizing the different market
and which
chooses
cost as its competitive advantage.
low
position is usually achieved by a mass production method.
differentiation strategy,
advantage and directs its sales to the
focus targets
quality
chooses
SBU
the
entire
market.
The low cost
In
as
segments
a
A
a
product
competitive
strategy
of
on a narrow market segment and chooses price or quality or
The market scope of a
both as competitive advantages.
"focus"
strategy
is narrower than that of the previous two generic strategies.
These three
generic
leadership
and
strategies
the
"focus"
are
strategy,
differentiation can coexist;, product
strategy are
only
different
not
mutually
and
cost
differentiation
Cost
exclusive.
and
leadership
and
the
"focus"
in the degree of market segmentation.
example, Japanese auto makers focus on the small car
23
market
and
For
choose
both price
quality as competitive advantages.
and
achieved by employing
strategy combining
cost leadership strategy.
a
cost
leadership
and focus.
the medium car market and the large car market,
will be
If
adopt
they
Thus,
a
they gradually enter
their
strategy
generic
best described as "product differentiation and cost leadership."
The third dimension, market
approach which
assumes
acquisition
share
high
that
Schendel 1979]
Hofer and
[
acquisition and
absolute
business strategies.
have
used
to
increase
market
describe
to
increase
share
positively related to absolute investment,
merged into
market
share.
the
two
six
generic
type
is
assumed
to be
dimensions
Thus, the six generic strategies reside on
one.
BCG
the
in
these two dimensions, market share
investment,
Since
originates
market share leads to high long-term
profitability and that investment is needed
of
Their low prices are
can
be
continuum
a
offensive-defensive-liquidation strategies, with market share increase
strategy at one extreme and liquidation(giving up market
other end.
continuum
This
at
the
dimension which describes
third
the
is
share)
a
generic strategy.
There are
many
combinations
combination is
a
acquire market
share
unique
of
these
generic
through
a
strategy.
product
through a cost leadership strategy.
exploratory study
and then
,
examine
generic strategies
to
three
dimensions
For
and
example,
differentiation
each
an SBU may
strategy
or
Thus, the next step is to conduct an
find feasible generic strategies employed by SBUs,
the
difference
described
between
above.
24
"real"
and
In the next section,
"theoretical"
a
methodology
is
2.
developed to identify the generic strategies used in an industry.
The Methodology of Identifying Generic Strategies
The generic strategy determines subsequent strategic decisions which
be measured in terms of strategic dimensions(e.g.
Assuming
expenses).
R&D
integration,
transformation from
a
the degree of vertical
there
that
SBUs adopting
dimensions.
strategic dimensions between SBUs, one can
employed by any one SBU in
SBU
dimension is
a
the "similarity"
in
an
its
similar generic strategy
a
identify
way described below.
a
N-dimension
of
euclidean
strategies.
their
the
Since
between
distance
space
which
in
these
the
SBUs
dimensions
is a
The
more similar are the strategies adopted.
several generic strategies in
between the SBUs
strategies
generic
distance" which reflects their strategic similarities.
the
along
behavior
each
strategic dimension, the distance between SBUs indicates
strategic dimensions,
distance is,
unique
a
Thus, based on the similarity of
must have similar strategic dimensions.
Placing each
is
generic strategy to subsequent strategic decisions,
the generic strategy of an SBU can be inferred from
several strategic
can
adopting
a
are
"strategic
smaller
If
the
there are
group of SBUs, there are larger distances
different
generic
strategies,
and
smaller
distances between the SBUs adopting similar generic strategies.
Cluster analysis matches the idea
inference as
described above.
of
identifying
generic
strategy
by
Cluster analysis places each object in an
25
N-dimension euclidean space and then clusters objects into
on the
distance
between
objects.
the
The
groups
criterion
clusters in this study is minimum squared error (MSE).
based
used to select
The MSE method is
to select the two clusters to be merged at each stage in such a way as to
minimize the mean squared distance between an individual
point
and
the
centroid of the cluster to which it will be assigned after the merger has
been affected.
The dimensions used here to describe each subject are the components of
strategy;
the difference in the components of strategy between groups is
assumed to be an
strategies.
strategy:
indicator
Hofer
product-market
synergy.
engaged
market,
in one
component are
of
difference
the
Schendel [1978]
and
advantage, and
scope,
Since
the
neglected.
suggest
resources
each
synergy
between
four
their
generic
components
deployment,
Resource deployment:
1.
business in the PIMS data base is
component
and
the
product-scope
The dimensions of the remaining two components
Degree of vertical integration: the ratio of
value added to total revenue.
B.
2.
Process R&D expenses / Revenue.
3.
Product R&D expenses/Revenue.
4.
Sales force expenses/Revenue.
5.
Promotion expenses/Revenue.
Competitive advantages
of
competitive
used and their definitions are the following:
A.
a
6.
Newness of plant and equipment: net book
value P&E/ Gross book value P&E.
26
Relative product quality: percent product
7.
quality
superior minus percent product
quality inferior.
8.
Relative price: percent relative prices
vs. competitors.
9.
New product% :percent of new product sales
to total sales.
10.
Relative direct cost
percent relative
:
direct costs per unit vs. competitor.
Applying cluster analysis
results in
to
an
based
industry
dimensions
these
on
grouping of SBUs adopting similar generic strategy.
a
Since
the groups are identified based on strategic dimensions, these groups are
called "strategic groups" [Porter
1979].
Porter
postulates
that
the
If
this
strategic groups in an industry exhibit performance differences.
hypothesis
correct,
is
different performance.
proposition either
use
different
generic
However, the empirical
size
,
and
Schendel
proposition, we will examine
lead
validating
studies
to
this
as the only strategic dimension to cluster
SBUs[Porter 1979 Stonebraker 1976], or use an
model[Hatten
will
strategies
To
1976].
the
statistical
inappropriate
correctly
performance
validate
differences
Porter's
between
the
strategic groups identified by cluster analysis.
The generic strategies described in the previous section
clearly
affect
these dimensions.
A strategy of cost leadership must have relatively low
price and
two important competitive weapons.
costs,
27
The product should
be standardized to fit
involve less
production
mass
and
RS.D
vertically
may
realize their economies of scale.
advantage
there
expenses should be relatively high.
Vertical integration may be either high or low.
leadership strategy
therefore,
Consequently, product R&D expenses should
product changes.
To reduce costs, process
be low.
methods
integrate
SBUs
adopting
backward
cost
forward to
or
However, SBUs using the same
purchase
a
strategy
exercise
their
bargaining power to lower their purchasing prices and thus, reduce
their
may
take
degree of
vertical
their
of
size
of
Therefore,
integration.
integration is not solely determined by
Finally,
the
cost
the
and
degree
of
leadership
vertical
strategy.
cost leadership strategy should lead to a higher market share.
a
As for the product differentiation strategy, Porter
strategy requires
quality and
high
By definition,
prices.
this strategy depends on the
product quality.
that
The
high
marketing
expenses
this strategy should have high product
vertical integration is affected by
Whether
contribution
of
vertical
integration
it has a
the
in the
Second,
different
to
limitations of the methodology and the PIMS data base.
First, the strategic dimensions used in the present
inclusive.
to
smaller market share.
Before discussing the results of our analyses, again, it is necessary
of
and
strategy of "focus" is similar to the strategy of
product differentiation, but
be aware
this
"strong marketing abilities" and "product engineering"
or "technology leadership", which lead to
high R&D expenses.
suggests
paper
are
not
all
the importance of these dimensions to the competition
industries
should vary.
28
However, no attempt has been
.
weights
made to give
some
to
dimensions
to
reflect
relative
their
importance
Based on 10 strategic dimensions, cluster analysis has been performed for
the chemical industry(SIC 28).
The main reason for choosing
a
particular
industry as the unit of analysis is to avoid the heterogeneity of
reason
The
behavior.
the chemical industry is that its
analyzing
for
firms'
sample size is the largest among the 2-digit SIC industries in
the
PIMS
data base.
3.
Empirical Results
The results
presented
of
Table
in
cluster
the
2.
is
chosen
at
of
the
chemical
the
of
cluster
the
where
level
of
objects
in two of
The
analysis.
mean
error
square
substantial increase resulting from the merger of two
the number
industry
are
Five groups of SBUs in the chemical industry were
chosen from the dendrogram
cluster
analysis
groups.
number
of
shows
a
However,
the groups in the chemical industry is
too small and so are excluded from the discussion.
As
a
result,
only
three groups are presented in the table.
In Table 2, the three major groups exhibit differences across most of the
strategic dimensions.
SBUs in group one adopt high vertical integration,
high R&D, heavy marketing intensity high product quality, high price
,
low cost
strategies.
and
The "internal consistency" of those strategies can
The SBUs in group one focus on high
be interpreted in the following way.
29
product quality and high price market.
The superior product
quality
is
achieved by high product R&D expenses, new equipment, heavy marketing, or
high degree
of
vertical integration (an important factor in the chemical
Because of superior product quality, these SBUs are
industry).
raise their prices and gain higher profits.
from high
to
High profits result not only
but also from low cost which is made possible by high
prices,
and
process R&D expenses
expenses and
able
product
new
low
low
new
product
High
sales.
process
R&D
indicate that the SHU exclusively
sales
focuses on the improvement of the production process of existing products
and not new products.
This internal consistency between strategic dimensions is the
the generic
adopted
strategy
strategy may
be
called
"low-profile" strategy
by
the
SBUs
"high-profile"
adopted
by
group
in
strategy,
group
3.
completely different strategies from the SBUs in
they also have no new product sales.
strategy.
These
three
generic strategies.
groups
group
SBUs in group
illustrate
three
2
group
in
of
This generic
1.
opposed
as
SBUs
result
1,
to
the
3
adopt
except
that
adopt an in between
internally consistent
Both the high-profile strategy and
the
low-profile
strategy show patterns similar to the product differentiation strategy as
described before,
but
one strategy differentiates itself from others by
its high product quality and the other by its low product quality.
30
Table
2
The Strategic Groups in the Chemical Industry
Group
No. of Obs
1
Group
17
2
Group
3
66
44
MEAN(S.D.)
MEAN(S.D.)
STRATEGIC DIMENSIONS (STANDARDIZED)
MEAN(S.D.)
REL QUALITY
REL PRICE
VERT INTEGRTN
PROD R&D/REV
PROC R&D/REV
SALES FRC/REV
ADV& PROMO/REV
P&E NEV7NESS
REL DIR COST
10.% NEW PRODUCT
1.
2.
3.
4.
5.
6.
7.
8.
9.
0.68(1.45)
1.16(0.19)
1.14(0.20)
1.97(0.61)
1.30(0.46)
0.92(0.78)
-0.07(0.08)
0.87(0.65)
-1.45(0.19)
-0.43(0.0)
0.23(0.97)
0.18(0.90)
0.33(0.82)
-0.20(0.56)
-0.30(0.55)
0.25(0.97)
-0.12(0.25)
0.08(0.80)
-0.01(0.46)
0.00(0.62)
-0.54(0.38)
-0.48(0.67)
-0.87(0.67)
-0.59(0.44)
0.15(0.24)
-0.87(0.39)
-0.29(0.02)
-0.57(0.38)
0.47(1.25)
-0.36(0.22)
PERFORMANCE
1.
2.
ROS
3.
MARKET SHARE
ROI
27.46(8.89)
36.05(19.08)
25.41(22.99)
16.98(11.29)
31.66(20.44)
29.05(20.11)
31
10.15(9.98)
24.16(18.40)
28.23(20.18)
)
)
Table
)
(CONTINUE)
2
The Strategic Groups in the Chemical Industry
Group
No.
of Obs
Group
4
4
5
5
STRATEGIC DIMENSIONS (STANDARDIZED)
MEAN
REL QUALITY
REL PRICE
VERT INTEGRTN
PROD R&D/REV
PROC R&D/REV
SALES FRC/REV
ADV&PROMO/REV
P&E NEWNESS
REL DIR COST
10.% NEW PRODUCT
1.
2.
3.
4.
5.
6.
7.
8.
9.
(
S
.
D
.
-0.97(0.60)
-2.21(1.15)
0.53(0.39)
-0.71(0.06)
-1.00(0.00)
0.78(0.36)
5.53(1.04)
0.50(0.71)
1.30(0.17)
-0.50(0.42)
MEAN
(
S
.
D
.
0.07(0.78)
-0.51(0.18)
-1.10(0.24)
1.65(0.36)
-1.00(0.00)
0.44(0.46)
-0.15(0.13)
0.38(0.91)
-0.17(0.18)
4.47(0.47)
PERFORMANCE
1.
2.
3.
ROS
ROI
MARKET SHARE
F
(
8.4(0.001)
23.2(0.001)
34.6(0.001)
90.0(0.001)
15.9(0.001)
22.4(0.001)
490(0.001)
9.0(0.001)
20.2(0.001)
128(0.001)
F
4.57(2.49)
14.52(4.24)
5.63(2.33)
5.66(1.07)
16.96(2.53)
14.90(3.15)
32
P
(P)
11.1(0.001)
"2.61(0.038)
1.8(0.113)
r'
0.253
0.074
0.052
.
Interestingly enough, as observed from Table
these
2,
three
strategic
groups show performance differences in terms of return on sales (ROS) and
investment
return on
F-tests
(ROI).
show
that there are significant
differences in ROS(at 1% level) and ROI (at
3.8%
high degree
SBUs in group
vertical
of
integration
of
asset turnover rates, and thus, there is no
ROI between
2
is
group
and group
1
higher than that
proposition
Therefore, the
significant
However,
1
the
reduces their
differences
in
But T-test shows that the ROI of group
2.
group
of
level).
at
3
significance
5%
level (t=2 16
.
)
that strategic groups in an industry exhibit
performance differences is generally confirmed.
Due to
the
differences
technological progress,
industries, the way
demand
different
pattern)
"internal
different between industries.
will be
across
sales,
is
Total
intensity as
a
(economies
market
is
scale,
of
structure between
constructed
should
be
Thus, the patterns of the generic strategy
industries.
To
the
to
test
this proposition, the
machinery
industry(SIC
35).
R&D intensity as it accounts for less than 0.5 of total
excluded from the
analysis.
and
consistency"
methodology used above is applied
However, process
conditions
basic
in
R&D
strategic
expenses
substituted
is
strategic dimension.
dimension
used
for
in
the
cluster
the
product
The results are presented
in
R&D
Table
3.
Based on nine strategic dimensions, six groups were identified
four groups
objects.
are
Again,
discussed;
two
groups
contain too
a
but
small number of
"high profile" and "low profile" generic strategies
33
only
are
Group
found.
adopts
1
high profile strategy and shows high degree of
a
vertical integration, high R&D and marketing intensity and
group
However,
quality.
only charges medium price
1
and thus obtains significantly
competitors;
high
,
high
product
relative to its
market
share
(47%).
This high profile strategy is different from the high-profile strategy in
the chemical
Newness
industry.
and equipment, and relative
plant
of
direct cost are not associated with the rest of strategic dimensions.
Group
2
adopts
Group
strategy.
group
2,
a
group
price, low
4
low-profile strategy and group
however,
4,
shows
an
Moreover,
strategy.
inconsistent strategy.
its
new
product
relatively high, and its marketing expenses are very low.
new products
do
not
have
necessary promotion.
The inconsistency in
poor performance
the
of
SBUs
in
As
Unlike
its
low
sales
are
result,
a
enough marketing budget to conduct
large
a
in-between
an
its direct costs to match
is not able to lower
quality
adopts
3
group
strategies
4.
results
very
in
Their ROI and ROS are the
lowest among the four groups.
As far as the performance is
industry, SBUs
in the
concerned,
unlike
machinery industry adopting
SBUs
a
in
the
chemical
low-profile strategy
are as profitable as SBUs adopting a high-profile strategy.
Both groups'
ROI are 28% and are significantly higher than the group 3's ROI at
level and group 4's ROI at
a
1% level.
34
a
5%
)
Table
3
The Strategic Groups in the Machinery Industry
Group
of Obs
No.
1
Group
Group
2
62
32
3
18
Group
4
23
STRATEGIC DIMENSIONS (STANDARDIZED)
MEAN(S.D.)
REL QUALITY
REL PRICE
VERT INTEGRTN
TOTAL R&D/REV
SALES FRC/REV
1.315(0.58)
0.13(0.60)
0.78(0.69)
1.42(1.12)
0.96(1.12)
ADVtPROMO/REV -0.07(0.45)
P&E NEWNESS
-0.30(1.14)
REL DIR COST
-0.08(0.64)
9.% NEW PRODUCT
-0.23(0.44)
^10. TOTAL MKTING/REV13.51(7.06)
1.
2.
3.
4.
5.
6.
7.
8.
MEAN(S.D.)
-0.35(0.60)
-0.10(0.62)
0.09(0.78)
-0.53(0.52)
-0.22(0.78)
-0.47(0.27)
-0.16(0.73)
-0.55(0.59)
-0.24(0.43)
8.68(4.58)
MEAN(S.D.)
0.13(0.63)
0.19(0.90)
-0.08(0.74)
0.13(0.59)
-0.16(0.56)
2.15(1.40)
0.12(0.63)
-0.06(0.47)
-0.18(0.33)
13.39(4.52)
MEAN
(
S
.
D
.
-1.13(0.40)
-0.95(0.43)
-1.12(0.94)
0.14(0.80)
-0.55(0.26)
-0.21(0.27)
0.46(1.29)
0.57(0.93)
0.37(0.87)
6.13(1.65)
PERFORMANCE
1.
2.
3.
ROS
ROI
MARKET SHARE
''^Not
13.90(9.42)
28.6(17.0)
46.7(20.6)
11.94(10.55)
28.9(26.3)
29.7(19.5)
Standardized
35
4.57(12.0)
16.2(20.4)
21.5(11.3)
3.37(5.14)
8.88(10.5)
14.1(9.61)
)
)
Table
)
(CONTINUE)
3
The Strategic Groups in the Machinery Industry
Group
I
No.
of Obs
Group
5
10
6
4
STRATEGIC DIMENSIONS (STANDARDIZED)
MEAN
(
S.D
.
REL QUALITY
0.19(0.94)
REL PRICE
2.41(0.44)
VERT INTEGRTN -0.86(0.59)
TOTAL R&D/REV
0.19(0.39)
SALES FRC/REV -0.83(0.46)
ADV& PROMO/REV -0.35(0.44)
P&E NEWNESS
0.05(1.12)
REL DIR COST
2.51(0.16)
-0.40(0.10)
% NEW PRODUCT
»^10. TOTAL MKTING/REV4.12(3.47)
1.
2.
3.
4.
5.
6.
7.
8.
9.
MEAN
(
S
.
D
.
0.05(0.10)
-1.02(1.42)
1.12(0.46)
2.83(1.78)
1.35(1.33)
0.09(0.22)
1.33(0.34)
-0.35(0.00)
5.00(0.55)
23.5(1.57)
PERFORMANCE
1.
2.
3.
^'Not
ROS
ROI
MARKET SHARE
F
(
44.4(0.001)
37.9(0.001)
20.0(0.001)
17.5(0.001)
16.2(0.001)
56.3(0.001)
3.57(0.005)
43.7(0.001)
83.1(0.001)
17.6(0.001)
F
8.22(2.88)
18.25(8.06)
10.9(4.33)
13.15(2.60)
25.72(6.69)
46.0(22.80)
Standardized
36
P
(P)
5.11(0.001)
4.00(0.001)
13.6(0.001)
IT
0.152
0.123
0.322
In conclusion,
identified.
strategic
four
groups
machinery
the
in
industry
are
profile strategy and high-profile strategy are equally
Low-
profitable and their profitability is higher than that of the strategy
the
results
These
worst.
strategies
inconsistent
The strategic group with
the middle.
confirm
proposition
the
that
in
performs
different
strategic groups perform differently.
Comparing the results of these two
generic strategy
industry is
process
a
.critical in operations.
because
example,
For
manufacturing
Thus,
high-profile
the
industry is slightly different from
machinery
industry.
chemical
the
that of
the
of
studies,
industry
the
chemical
industry, vertical integration is
integration
vertical
an
is
important
strategic decision which is included in the high-profile generic strategy
in the
SBUs
industry.
the chemical industry, but not in those in the machinery
in
importance
A discriminant analysis revealing the
of
vertical
the chemical industry has been performed by using the ten
integration in
strategic dimension as right-hand side variables.
is the strategic
group of which the SBU
vertical integration
is
the
most
is
The dependent variable
member.
a
degree
The
of
important variable in discriminating
SBUs into the strategic groups created by the cluster analysis.
The otherwise
similar
demonstrate that
price,
generic
strategies
industries
two
the
quality, R&D intensity, and marketing intensity
are usually considered at the same time
generic strategy.
Depending
dimensions to
competition
the
in
upon
in
the
a
37
as
and
form
importance
particular
the
of
basis
of
a
these strategic
industry,
vertical
integration, relative
cost,
and other strategic dimensions may be added
to this basis.
Strategic grouping is actually
Many typologies
aspect
integrated view
Snow' s[l979]
businesses
Rogers[l971]
adopting behavior.
only one
,
typology of the
SBUs
in
based
categorized
businesses
However, most of the
of
SBU's behavior.
organization
an
of
and
an
Burns
and Stalker s[ 1961
found two types of organization:
place
innovation
emphasis
on
Typologies that can provide an
can
'
their
by
typologies
For example,
technological
their
on
industry.
an
can be found in the management literature.
Ansoff[1965] classified
leadership.
a
found
be
]
organic and
studies.
Miles
in
and
Burns and Stalker
mechanic.
Based
on
the
process of adjustment to environmental changes, Miles and Snow identified
four generic
types
of organization:
defender, prospector, analyzer and
Defenders focus on improving efficiency of existing operations.
reactor.
Prospectors seek new products to match market
are in
the
middle
either ends.
the
of
Reactors
adjusting processes.
show
Miles
opportunities.
Analyzers
continuum with defenders and prospectors at
inconsistent
and Snow have
and
a
unstable
behavior
in
detailed description of the
internal consistency among organizational processes for each generic type
of organizations.
their study:
However, only two strategic dimensions are included in
new product sales and costs.
The major difference between our strategic group typology and
studies is
the
kind
of
variables used to cluster SBUs.
group typology uses the "content" of
a
38
these
two
The strategic
strategy to find a typology, while
organizational
the other studies use
the
Despite
typology.
difference,
processes
variables
findings
the
are
similar
aspects.
First, all three studies found a continuum, although
ones, to
categorize
existence
The
SBUs.
of a
in
terms
of
in two
continuum reflects the
which
at
the
the
chemical
to
However,
dimensions
is
only
a
performance
good
internally
industry,
strategy also results in poor performance.
among strategic
the
performance.
indicate the importance of internal consistency.
internal consistency per se does not lead
observed in
in
Second, this study and MS^S's studies
same time.
found that a set of inconsistent strategies results in poor
These results
are
content or strategic processes.
strategy
Without internal consistency, strategic dimensions will not move
same direction
a
different
existence of internal consistency among strategic dimensions,
measured either
reach
to
as
was
consistent low-profile
consistency
internal
Thus,
necessary, but not
a
sufficient,
condition for success.
IV.
GENERIC STRATEGIES AND THE STAGES OF THE PLC
The discussion of the nature of marketing mix to be employed by
phase is
vast
[Kotler, l980;Staudt, Wasson, 1974].
agreement can not be found in the literature,
agree that
PLC.
marketing
most
This
marketing
theorists
mix should be different in the different stages of
PLC
seldom
is
section attempts to derive some hypotheses regarding the
generic strategy in each of the PLC
summary of
PLC
Although conclusive
However, the overall strategy in each stage of the
examined.
the
stages.
It
begins
with
a
brief
marketing theorists arguments about appropriate marketing mix
39
in different
stages.
strategy and
the
in
regarding
hypotheses
stages are postulated.
PLC
methodology developed
some
Then,
the
generic
Finally, by employing the
the previous section, the generic strategies
in
the PLC phase are identified and discussed.
1.
Introductory Stage
In the introductory stage,
try its
product.
the SBU's primary task is to get consumers
These early adopters are usually higher-income groups
[Smallwood 1973, Kotler 1980].
quality in
to
Hence,
price
is
not
important
as
winning early adopter approval of the new product.
as
Promotion
expenditures must be high to insure exposure of potential adopters to the
At the same time, producers must
new product.
products to improve their quality.
thus high.
Since
production costs and promotion expenditures are high,
require
costs
involved
product
Frequent
high.
the SBU change its production process.
result, the SBU has to reduce
reduce the
their
As a result, the production costs are
Buzzell [1966] suggests that prices tend to be
modifications also
modify
frequently
its
in
degree
changing
of
vertical
production
As a
integration
processes
if
it
to
is
possible.
This process leads to the hypothesis that SBUs in the introductory
should adopt
a
stage
high-profile strategy-- high quality, high price, high R&D
and marketing intensity, and high new product sales, with
vertical integration if possible.
40
a
low degree of
The number of SBUs in the introductory stage in the PIMS data base is too
small to perform meaningful cluster analysis;
no statistical results are
available for the introductory stage.
Growth Stage
2.
If
the new product successfully goes through the introductory stage,
sales will
climb
substantially.
The
increase
in
demand attracts new
competitors who will intensify competition and lower the profits
maturity stage.
in
SBU
adopt an offensive strategy to acquire market share so that the
mitigate the effects of the fierce competition in the maturity stage.
is
acquire market share
(ii)
mature
the
market
in
justifiable
also
because
stage
will
be
However,
is cheaper
it
(i)
mature
the growth stage than in the
gains.
share
the
this stage, Catry[1974] suggests that an SBU should
At
offensive strategy
its
stage,
can
An
to
and
long enough to let the SBU harvest the
Kotler[1980]
argues
the
that
market-expanding strategies will be costly, and, thus, SBUs in the growth
stage face a tradeoff between high market share and high current profits.
This implies
that SBUs at the growth stage have two distinct strategies:
offensive and defensive.
share and
An offensive strategy leads
to
higher
market
lower profits and a defensive strategy results in lower market
share and higher profits.
SBUs adopting an offensive strategy may increase their
creating product
market
share
by
differentiation or by cutting prices and costs or both.
SBUs in the growth stage would probably best acquire market share through
41
product differentiation.
growth
the
In
there
stage,
opportunities for SBUs to improve their product quality.
is
widening
and
there
chances
are
differentiation, to appeal to different groups.
differentiation
strategy
Therefore, SBUs adopting
a
similar
is
to
a
The buyer group
through
SBUs,
for
As
many
are
stated,
product
high-profile
high-profile strategy have better
product
a
strategy.
performance
than the SBUs adopting a low-profile strategy.
Other than acquiring market share,
market position
deterring
by
illustrate tactics
of
substantial economies
entry
dominant business
may
Gaskins(1971
entries.
deterrence.
scale,
of
a
Gaskins
In
the
suggests
)
enhance
and Spence(1977)
industries
a
its
having
limiting pricing
strategy of lowering prices to the level where additional demand will
less than
minimum
the
suggests that
a
efficient
scale
should an entry occur.
dominant business may keep excess capacity to
the
be
Spence
level
where entries will not be profitable if the dominant business produces at
full capacity after entry occurs.
be applied
by
dominant
a
SBU
However, these two strategies can only
industries
in
which enjoy substantial
economies of scale.
In sum, in the growth stage,
market position.
entry or
by
a
major
objective
is
to
establish
solid
A dominant SBU may strengthen its position by deterring
acquiring
market share.
Firms without
a
dominant position
should adopt an offensive, product differentiation strategy.
The methodology used in the previous section is again applied to SBUs
42
in
Four groups are
The results are presented in Table 4.
the growth stage.
Since
the cluster analysis using nine strategic dimensions.
chosen from
strategic groups should be in the same industry, these groups in the same
stage are called "strategic clusters".
Because
oriented strategy.
of
Group one
shows
high new product sales, SBUs in group
However,
have high R&D intensity and medium marketing intensity.
R&D expenses
their product quality.
As a result,
prices are the lowest.
while their
in
on developing new products and not
spent
are
As
group
expected,
etc.
low-profile
typical
as
with
group
Group
growth
the
product
quality,
price
high
expenses and high direct cost.
It
to
poor
Group
stage.
3
and group
4
market
2
low price
performance
poor
for
the
show significantly
better performance than those of the first two groups.
on high
lead
low product quality,
strategy,
1.
worst
the
I's ROI,ROS, and market share are the
The low-profile strategy also leads to
same reason
their
Since buyers in the growth stage are
lowest among the four strategic groups in
adopts a
1
improving
on
their product quality is
relatively high income groups, these strategies should
performance.
product
new
a
Group
3
focuses
with very high promotion
should be noted that their high direct
cost does not erode their profits because their prices are high enough to
cover the high cost.
In short,
differentiation strategy without emphasis on costs.
3,
SBUs
in
strategy.
group
4
are cost conscious.
They
average quality products.
of mass
also
charge
They choose
medium
prices
a
cost leadership
43
and
cost,
high
for their above
This strategy can be described as
production of quality product.
product
In contrast to group
They have high market shares, very low direct
marketing expenses.
typical
group 3's strategy is a
a
strategy
Table
4
The Strategic Clusters in the Growth Stage
Group
No.
of Obs
1
22
Group
Group
2
72
3
20
Group
4
46
STRATEGIC DIMENSIONS (STANDARDIZED)
MEAN(S.D.)
REL QUALITY
REL PRICE
VERT INTEGRTN
4. TOTAL R&D/REV
5. SALES FRC/REV
-0.85(0.76)
-0.45(0.73)
0.12(0.77)
0.72(0.94)
0.14(0.90)
6. ADV&PROMO/REV
0.36(1.21)
7. P&E NEWNESS
0.69(0.80)
8. REL DIR COST
0.27(0.72)
9. % NEW PRODUCT
1.42(1.71)
aO.TAT MKT EXP/REV12.93(5.47)
1.
2.
3.
MEAN(S.D.)
-0.39(0.82)
-0.34(0.70)
-0.53(0.95)
-0.44(0.45)
-0.56(0.57)
-0.38(0.64)
-0.35(0.91)
0.16(0.61)
-0.27(0.50)
6.42(3.98)
MEAN{S.D.)
MEAN(S.D.)
0.99(0.61)
0.57(0.81)
1.45(1.07)
0.10(0.87)
-0.16(0.69) 0.83(0.65)
-0.23(0.78) 0.42(1.31)
-0.26(0.60) 0.95(0.97)
1.21(1.47) -0.13(0.55)
0.62(0.83) -0.07(0.99)
0.93(1.41) -0.80(0.83)
0.08(0.70) -0.24(0.60)
12.28(7.36) 15.3(6.25)
F{P)
32.7(0.01)
27.3(0.01)
25.6(0.01)
14.2(0.01)
38.3(0.01)
19.0(0.01)
10.6(0.01)
23.8(0.01)
25.2(0.01)
31.4(0.01)
PERFORMANCE
•1.
ROS
2.
3.
ROI
MARKET SHARE
6.30(6.46)
7.42(10.41)
12.88(15.12) 20.9(25.0)
17.35(14.14) 22.7(18.1)
PERFORMANCE DIFFERENCES
R
l.ROS
2. ROI
3. MARKET
SHARE
0.169
0.108
0.05
I^OT STANDARDIZED
44
12.62(10.7)
30.1(25.2)
24.5(16.6)
17.2(10.2) 10.6(0.01)
36.3(24.2) 6.26(0.01)
30.5(22.4) 2.75(0.05)
,
The mass production of quality product strategy enjoys the
ROS,
highest
ROI
and market share among the four groups.
Since both successful strategies focus on the high quality market,
SBUs
clear that
market.
the
in
growth
However,
is
stage should focus on the high quality
with
This conclusion is consistent
marketing theorists.
it
the
common
suggestion
by
the coexistence of high market share and
high profitability illustrates that there
no
is
need
for
tradeoff
a
between market share and profits as suggested by Kotler.
Finally, F-test shows that ROI, ROS, and market
different among
the four groups.
share
significantly
are
This indicates that strategic clusters
also exist on the PLC stage level.
3.
The Maturity Stage
As more businesses enter the market and as
declines, competition become fierce.
for improving
product
differentiation is less.
stage is
largely
price
focus
on
rate
At the same time,
demand
of
growth
the opportunities
quality had been exploited and therefore, product
As a result, the competition
competition{Levi tt
Consequently, the key to profitability
SBUs should
the
in
l965,Staudt
this stage is
the
in
&
maturity
Taylor 1976).
cost
structure.
cost reduction strategies such as cost leadership
rather than on product differentiation.
The intensified competition also makes it costly to acquire market share.
45
Thus, an SBU should adopt
defensive strategy in the maturity stage.
a
The cluster analysis results are presented in Table
groups are
identified
for
share,
SBUs in the maturity stage and three of
the
That is, group
found to be most advantageous.
Group
prices.
3
adopts an in-between strategy.
strategy leads
shows that there
maturity stage.
the maturity
the
to
is
a
The mass production of
room
for
product
quality
low-profile strategy and group
performance
best
still
adopts
has high market
1
low direct cost, high vertical integration, high
and average
strategic
A strategy of mass production of quality product
them will be discussed.
is again
Five
5.
quality
products
among the three groups.
product
2
differentiation
in
This
the
Since this strategy is successful in both the growth and
stages,
an
SBU
should
look
at the high product quality
market and at the same time, drive costs down so that it
charge
can
an
average price to gain market share without sacrificing profits.
Comparing these results to those of the SBUs
points are
noticed.
First,
in
in
the
growth
the growth stage, group
3
stage,
two
has high direct
the high
cost, high price and high profits.
In the maturity stage,
group has the poorest performance.
One possible explanation is that cost
is not
important
in
cost
the growth stage but it is critical in the maturity
stage because high direct costs can be offset by high price in the growth
46
)
Table
5
The Strategic Clusters in the Maturity Stage
Group
No.
of Obs
Group
1
Group
2
49
33
3
28
STRATEGIC DIMENSIONS (STANDARDIZED)
MEAN
(
S D
.
.
)
REL QUALITY
REL PRICE
VERT INTEGRTN
TOTAL RScD/REV
SALES FRC/REV
1.18(0.84)
0.25(0.98)
0.45(0.88)
-0.14(0.54)
0.01(0.91)
ADV&PROMO/REV
0.09(0.64)
P&E NEWNESS
0.35(0.82)
REL DIR COST
-0.49(0.64)
-0.15(0.60)
% NEW PRODUCT
aO.TOTL MKTING/REV 8.77(7.16)
1.
2.
3.
4.
5.
6.
7.
8.
9.
MEAN
(
S
.
D
.
)
-0.46(0.69)
-0.25(0.68)
0.17(0.84)
-0.02(0.76)
0.39(1.16)
-0.13(0.46)
-0.53(0.83)
-0.27(0.70)
-0.18(0.50)
9.48(6.13)
MEAN
(
S
.
D
.
-0.62(0.36)
-0.45(0.52)
-1.06(0.65)
-0.30(0.48)
-0.47(0.56)
-0.27(0.22)
0.49(0.62)
0.30(0.96)
0.06(0.91)
4.86(2.53)
PERFORMANCE
1.
2.
3.
ROS
ROI
MARKET SHARE
14.6(7.63)
31.4(15.7)
32.8(18.0)
8.66(10.22)
23.13(26.04)
20.3(14.7)
'Not Standardized
47
3.87(7.12)
12.0(14.7)
19.8(14.4)
)
Table
(CONTINUE)
5
The Strategic Clusters in the Maturity Stage
Group
No. of Obs
Group
4
4
5
8
STRATEGIC DIMENSIONS (STANDARDIZED)
MEAN
1.
(
S
.
D
.
)
MEAN
(
S .D
,
)
F
(
P
maturity
stage but not in the
products
quality
production of
strategy
the
Second,
stage.
mass
of
the maturity stage does incurs only
in
This may be
average, not high, marketing and R&D expenses.
due
the
to
fact that these SBUs either are preparing to retreat and are reluctant to
invest in
and
marketing
R&D
that
or
they
have established dominant
positions and have no need for further investment
In conclusion,
it
is
that
found
differentiation still exists and
a
R&D.
product
stage,
strategy of mass production of quality
Both cost and quality are important for
products is the most profitable.
a
and
marketing
maturity
the
in
in
strategy in the maturity stage while cost is not important
competitive
for quality products in the growth stage.
4.
The Decline Stage
In the decline stage,
an SHU has two basic choices:
and prepare to retreat, or (ii) create
maturity or
If
a
like
situation
an
innovative
cycle-recycle type PLC as described in the first section.
an SBU prepares
expenses because
a
accept the trend
(i)
to
the
profits
SBU
the
retreat,
should
already
are
very
any
cut
low.
unnecessary
This leads to a
low-profile strategy characterized by low marketing and R&D expenses.
an SBU wants to fight the decline,
strategy by increasing
R&D
and
it
If
should adopt a new product oriented
marketing
expenses
to
stimulate
new
demand.
The cluster results are presented in Table 6.
49
The
first
three
groups
target on
high quality market.
the
quality products
strategy (high
marketing expenses,
Group
2
,
and
.)
1
adopts
mass production of
direct
low
share,
•
a
is small,
maturity stage, this strategy leads
segment with quality new products.
extremely
to
high
share),
respectively.
They
Their
have
that of
group
two,
but
and
that
of
other
the
two
new product sales from these SBUs indicate
remarkably
strategy
strategydow market share).
poor
Since its target market
that they are trying to revitalize their declined businesses and they
so successful.
high
ROS), despite the SBU's high market share.
2.5%
the marketing expenses are less than
The
cost,
However, unlike its performance
focuses on a small segment of the market(low market
supplies the
groups.
market
high quality etc
in the growth stage and the
performance{6% ROI
Group
can
be
high
ROI
interpreted
The third group adopts
its
high
marketing
profits.
50
and
a
do
ROS, 19% and 42%
as
a
"focus"
strategy similar to
expenses has reduced its
Table
6
The Strategic Clusters in the Decline Stage
Group
No.
of Obs
1
15
Group
2
Group
3
14
5
STRATEGIC DIMENSIONS (STANDARDIZED)
MEAN(S.D.)
1.
MEAN(S.D.)
MEAN(S.D.)
Table 6(Cont.
The Strategic Clusters in the Decline Stage
Group
No. of Obs
4
13
Group
Group
5
23
6
18
STRATEGIC DIMENSIONS (STANDARDIZED)
MEAN(S.D.)
MEAN(S.D.)
MEAN(S.D.)
-0.24(0.53)
-0.52(0.47)
-0.70(0.66)
-0.75(0.35)
-0.46(0.28)
ADV&PROMO/REV
0.03(1.11)
P&E NEWNESS
0.23(0.96)
REL DIR COST
-0.39(0.66)
-0.23(0.70)
% NEW PRODUCT
^lO.TOTL MKTING/REV 7.54(3.56)
-0.21(0.60)
-0.56(0.52)
-0.16(0.30)
-0.65(0.40)
-0.30(0.21)
0.69(1.08)
-0.09(1.00)
-0.50(0.75)
-0.55(0.20)
9.01(2.75)
-0.27(0.43)
-0.47(0.39)
-1.39(0.19)
-0.87(0.22)
-0.66(0.21)
-0.82(0.26)
0.65(0.73)
-0.24(0.51)
0.18(0.87)
5.66(3.59)
1.
2.
3.
4.
5.
6.
7.
8.
9.
REL QUALITY
REL PRICE
VERT INTEGRTN
TOTAL R&D/REV
SALES FRC/REV
PERFORMANCE
1. ROS
2.
3.
ROI
MARKET SHARE
F
7.84(0.001)
13.8(0.001)
58.8(0.001)
26.2(0.001)
92.2(0.001)
11.0(0.001)
6.69(0.001)
33.5(0.001)
20.7(0.001)
17.4(0.001)
F
3.76(3.46)
14.2(12.5)
19.5(16.3)
4.88(2.44)
20.3(11.0)
24.8(18.9)
%ot Standardized
52
2.32(3.98)
6.33(9.57)
12.6(8.33)
(p)
(P)
9.45(0.001)
9.42(0.001)
2.29(0.053)
r'
0.365
0.365
0.123
The remaining three groups
strategy is
an
have
varying
a
low-profile
Group
strategy.
4's
It adopts a low-profile strategy but has verj^
inconsistent one.
pr
high direct cost and high
R£lD
expenses.
average
ROI
consistent low-profile strategy.
But
As a result,
it has
below
V£
Both group
and ROS.
5
and group
6
adopt
a
PI
group
5
has lower direct cost and larger market share than group 6.
group
Thus,
OJ
5's performance is better than group 6's performance.
P'
differences
Finally, F-test shows that there are significant
in
ROS,
ROI
and
market share among the six strategic clusters.
In sum, a strategy of mass production
superior performance
in
the
decline
of
quality
products
Instead,
stage.
a
does
lead
not
to
new product oriented
strategy focusing on high quality market is the most profitable strategy.
V.
THE LENGTH OF THE PLC AND GENERIC STRATEGY
The length of the PLC is another dimension which characterizes competition in
industry.
A
short
competition drives
PLC
the
characteristic influences
reflects
SBUs
to
every
rapid technological progress and as
introduce
strategic
new
products
dimension
an
a
result,
frequently.
This
mentioned in the previous
sections.
First, the frequent product change requires the SBUs to put more effort into
and to
increase
R&D budgets.
As for marketing expenses,
R&D
the short lives of new
products force the SBUs to reach their potential customers as soon as possible so
that the SBUs can harvest profits from the
53
new
product
as
long
as
possible.
P!
Therefore, short PLC SBUs must have higher marketing expenses than long PLC SBUs.
introduction also requires SBUs to change their production
product
T-requenc new
process frequently.
To reduce switch costs, SBUs have to reduce their degree
vertical integration.
PLC SBUs
Thus, the degree of vertical integration is less for short
old products, the quality of new
Prices
also
promotion costs are high.
high price.
in new
As the objective of new products is to replace
than for long PLC SBUs.
products.
should
products
be
Thus,
must
higher
be
because
high
than
production,
short PLC SBUs have
high
that
of
old
development, and
product
quality
and
Profits should also be high to compensate for the high risk inherent
product introduction.
In sum, as opposed to SBUs having longer PLC,
following
expenses, (3)
c;osts,{6).
ROI
of
characteristics:
.
(l).high
high product quality,
high
prices, (7)
a
R&D
(4).
short PLC SBUs should
expenses
high
new
,( 2
)
.
product
high
exhibit
marketing
sales, (5).
low degree of vertical integration and (8).
,
.
54
the
high
high
Table
7
The Strategic Differences Between
Short and Long PLC Groups
Short PLC
No.
of Obs
Long PLC
t
values
401
85
STRATEGIC DIMENSIONS
1.
2.
3.
4.
5.
6.
7.
MKTING EXP/REV
TOTAL R&D/REV
REL PRICE
REL PROD QUAL
% NEW PRODUCT
VERT INTGRTN
REL DIR COST
8.
ROI
.
MEAN(S.D.)
MEAN(S.D.)
8.98(4.58)
1.76(3.00)
105.8(6.16)
31.6(21.6)
27.2(23.5)
42.8(15.9)
100.5(3.31)
9.74(6.95)
2.08(2.22)
103.1(6.53)
26.21(28.2)
8.80(15.2)
54.48(15.96)
102.6(5.86)
12.7(15.5)
19.15(20.9)
These hypotheses are tested by
using
frequency of
and
changes
product
criteria to select short PLC SBUs
reported that
0.93(not sig)
1.25(not sig)
3.64(0.01)
3.22(0.01)
6.93(0.01)
6.17(0.01)
4.64(0.01)
3.25(0.01)
PIMS
the
values(P)
t
data
Both
base.
the technological change are used as
across
industries.
The
which
SBUs
they annually or seasonally change their products and that
they have experienced major technological change during the last
are selected
the
as
short
PLC SBUs.
years
8
The SBUs that change their product at
least longer than one year and have no technological change in the last
years are chosen as long PLC SBUs.
from the
PIMS
differences
in
data
base,
the
After these
t-test
the
groups
performed
to
chosen
are
examine
the
strategic dimensions between the two groups.
The t-test results are shown in Table 7.
except for
is
two
8
The
null
hypothesis
is
that
degree of vertical integration, all strategic dimensions
55
.
and ROI of short PLC SBUs
However, Table
are
higher
than
those
of
PLC
long
SBUs.
shows no significance differences in marketing intensity
7
and R&D expenses between short PLC and long PLC groups.
This is probably
due to the fact that the length of the PLC is not the only determinant of
marketing
R&D and
For example, SBUs in the industrial goods
expenses.
industries may have less marketing expenses than
SBUs
in
the
consumer
and
new
products
goods industries.
As expected, relative product quality,
relative price
significantly higher in the short PLC group.
sales are
However, ROI and
relative direct cost are significantly different between the
in the
direction
opposite
One possible explanation
the short PLC group is that the ROI
for the low ROI
in
the PIMS
base
data
to the hypotheses.
is a
groups
two
measure
used
in
short-term measure(four year average), but the
hypothesis regarding ROI is concerned with long-term profitability.
Vertical integration acts in the direction as
The
hypothesized.
group
with short PLC is significantly less vertically integrated.
In conclusion,
of vertical
it
is
found that SBUs having short PLCs have
integration,
product sales, and low ROI.
high
prices,
high
Long PLC SBUs act
manner
CONCLUSION
56
a
low
degree
product quality, high new
in
a
directly
opposite
The PLC has long been used
allocate
curve with
deviations.
in
stages
the
of
and
demand
different
should
competitive strategies
a
profitable in
growth
in the
and
However,
stages.
thus
In the present paper,
stage
decline stage.
SBUs'
it
is
from each other in many
strategy.
be different
the PLC
empirical
no
Appropriate
in the different
strategy of mass production of quality
has been found that
the
pattern
different
are
PLC
of
is suggested that each stage of
It
competition
different
the
aspects that are crucial in formulating
profitable
timing
to
S-shaped
determine
to
evidence directly supports this hypothesis.
shown that
demand,
future
Research has confirmed that the PLC do exhibit an
some
is
predict
to
product
has its own distinct
behavior
aid
an
new
and
resources
development.
as
generic
stages.
It
product
is
the maturity stage, but it is not
and
Cost is
not
critical
in
the
growth
stage but is critical in the maturity stage.
A "focus" strategy leads to
superior performance
These findings suggest that
in
the decline stage.
the stage of PLC is a useful tool in formulating strategies.
research
results
also
groups (clusters) exhibit
confirm
the
performance
level and the PLC stage level.
57
proposition
differences
at
that
The present
strategic
both the industry
C
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Review
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